This invention relates to computerized business methods for the insurance industry for providing improved services and for improving the handling of insurance related business transactions.
Conducting commercial enterprise by means of networked computers is an established fact of life in almost all industries, and use of a global computer network to extend business functionality into the homes and home offices of individuals is becoming pervasive. The most sophisticated of common public computer networks, the Internet, has rapidly advanced from its beginning as a communication tool for the scientific elite to its current state of being a common network to enable every interest of the average citizen. Technical knowledge on how to use the Internet is now taught in grade schools, and capability to access the Internet is available at prices comparable to the price of telephone service. According to statistics, the Internet audience is now approximately fifty percent of all households in the United States, and continues to expand steadily.
This revolution in networked-computer communication systems has led to the emergence of Internet-based businesses that make numerous products and services available to the consuming public. Indeed, many businesses have shown amazing rapid adaptation of pre-existing marketing and sales to selling via the Internet. Some businesses have come into existence entirely to offer products solely on the Internet. In either case, the “electronic shopping” offered by Internet businesses has quickly established itself as a desirable alternative to the traditional forms of shopping that require a trip to a retail outlet or service provider. The very language of business has now gained an entire lexicon of Internet phrases and meanings that allow an individual easily to apply traditional business language to Internet business functions, as when individuals using the Internet to transact commerce are described as participating in “e-commerce”.
As the Internet has become a tool for both business and the consumer, the type of products and services available on it has expanded to include the financial services sector of the economy. And within the financial services sector, most banking, finance, and investment banking firms have become firmly entrenched in e-commerce. There is an entire class of industries, however, which have not exploited the Internet in a way that would gain them a business advantage. These industries are financial-service corporations whose initial business success required that a large, financially secure institution provide financial independence and strength upon which the security of its products and services would be predicated. For product marketing and sales, these industries invested in a personal agency sales force supported by a middle tier of branch offices or managing agencies, with control flowing from the corporate home office down through the managing agencies to the agent. All agents were typically captive to the corporation in the early formative years of such industries. This four-tier structure, comprised of company, general agency, agent, and consumer, has been a mainstay of financial products industries for more than a hundred years. A primary embodiment and exemplar of this class of industries is the insurance industry, and in particular, the life insurance industry.
The involvement of multiple companies, general agencies, agents and consumers in day-to-day relationships has a deleterious effect on the insurance industry. For example, an agent may form a relationship with one or more general agencies to distribute a product from one or more companies. In addition, an agent may have a direct relationship with a company to sell product directly to the consumer. From the standpoint of a consumer, it is unclear whether the agent is selling the policy from a company directly or through a general agency. In a situation where the agent is dealing directly with the company, the company may have more control over the agent, and ultimately more control over the information that is disseminated to the consumer. When dealing through a general agency, the company is one additional step removed from the agent and the consumer. Once a product is initiated, communication then may be routed directly from the company to the consumer.
Previously, insurance companies have been reluctant to sell directly to the consumer for fear of undermining the industry structure inherent in the existing hierarchy. In addition, a consumer may have difficulty in assessing where to obtain information regarding a product, not knowing whether they should go to an agent or to a company. As can be appreciated, this complex and confusing relationship of insurance industry structure is not efficient, creates unnecessary confusion and further impedes the ultimate goal of the consumer receiving a product from the company.
A general problem faced by the insurance industry and, importantly, not solved by it, is how to break free of the massive computerized administration systems that are the bedrock of their trustworthiness and reputation, in order to adapt quickly and radically to using the Internet to market and sell their products. The computer systems that form the bedrock of their information-intensive financial capabilities have become millstones around their necks, preventing them from modernizing and reaching out to new markets with new products.
The problem confronting, for example, the life insurance industry, has not been the computerization of back-office administration and computation functions. Indeed, many large life insurance companies have been technology leaders in financial and actuarial computation. Rather, the problem has been the lack of modernizing the product distribution arm of the industry by which agents sell products and services, and by which consumers receive information from their product providers. Despite the consumer's willingness to embrace e-commerce, the insurance industry has failed to capitalize on this trend.
The life insurance industry therefore suffers from a technology gap, as compared to other financial institutions. Each company operates a proprietary computerized administrative system whose operations are unique to the company's particular procedures and practices. This makes it seemingly impossible for companies to create new images and new market brands for themselves and their products. But it is exactly the new images that are needed by the independent sales force. They are desperate for fresh ideas and images to help sell products on the Internet, where any hint of an old or out-of-date image produces a glaring condemnation of the purveyor of the product. On the Internet, the fate of a stale marketing message is cruelly simple: “the messenger is instantly killed and the message instantly rejected”.
Many households with Internet capability have the need and desire to purchase life insurance and other insurance products. A recent insurance survey revealed ten percent (10%) of consumers would buy a policy online, while twenty-seven percent (27%) said they were likely to gather insurance information on the Internet. In spite of these obvious trends toward e-insurance, the life insurance industry continues to trail the rest of the financial service sectors in implementation of meaningful Internet strategies.
The fractured and segmented nature of the life insurance industry is one factor that has kept it from realizing the Internet's full potential. The existing insurance industry model, as discussed, comprises four main tiers: company, general agency, agent and consumer. To further complicate matters, an agent may hire numerous sub-agents. For discussion purposes, the numerous sub-agents are included under the agent component rather than separately treated as another component. The insurance company creates and underwrites the policy and distributes it to the consumer directly or through an agent. In the formative days of the industry, when today's large companies were just getting started, agents were bound to a single company, or to general agencies that were bound to a single company. Today, however, the agent situation is entirely different. Eighty-five percent (85%) of all life insurance agents are independent and have no direct employment obligation to the insurance companies that contract with them. The independent agents usually affiliate themselves with an insurance company by executing an appointment contract through an agency known as a Managing General Agency (MGA), which is a marketing organization for both companies and agents. Independent agents can be and frequently are, appointed to several different insurance companies, and possibly through several competing MGA's.
Insurance companies rely upon MGA's to recruit agents that will sell their products. In turn, MGA's are paid a commission on the dollar volume that the contracted agents direct to the insurance company. MGA's have an incentive to maximize their commissions by directing their production to a few insurance companies, thus, focusing and limiting their selection of products. Agents generally act autonomously, writing for whom they please, promoting and representing products with little supervision, and collecting their commissions on whatever basis they can, sometimes directly from the company with which they are associated, at other times from the MGA's that appoint them.
Agents receive only fragmented information from each of the insurance companies with which they place business; i.e., they cannot obtain consolidated sales and commission transaction records, underwriting status reports, or customer service details. Agents must contact each insurance company individually and interact with its multiple administrative departments to keep track of the approval and commission status of the business they have written. Rather than these contacts being efficient and satisfying exchanges, they frequently lead to confusion and high levels of frustration. Agents as well as the managing general agencies are forced to keep their own set of records, in order to be able to respond to consumer questions, but this causes multiple data entry and duplicate record keeping. Agents find themselves forced to hire additional office staff merely to keep track of business relationships, client information, and income sources.
In the existing insurance industry, communications between agents and their clients is typically poor. Depending on their confidence in their agent, consumers are as likely to pick up the phone and contact the insurance company directly as they are to phone the agent. This bypasses the agent and denies them participation in the customer service process. Because most companies have difficulty fully accommodating just this type of random client request, the consumer may be dissatisfied with having called the company to get help with their question. Moreover, the agent and the MGA may be completely unaware of the dissatisfied consumer. Such a communication breakdown has a negative outcome for every party to the transaction.
Insurance company communication problems also extend to the multitude of policies, forms and procedures for which they are famous. Indeed, the distaste of the average citizen for financial instruments comprised of many pages of detailed contractual description is well known. And the public's insecurity in feeling that they should understand all the “fine print” leads to a reluctance to engage with the sales force and other staff responsible for creating, explaining, using and selling the products. And insurance contracts also vary by company and by state, since insurance regulation is carried out at the state, not federal, level. This results in each individual insurance company being forced to fashion different policies, forms and procedures to meet the requirements of local state regulatory commissions, even though the policy is the “same product” from the company's perspective.
In the current industry environment, no two participants in any means of communication are necessarily speaking the same business language nor receiving their information in a common format. No industrial forum exists for assembling disparate data into a shared system of exchange. The consequences are not only poor coordination between the several-to-many parties involved in sales and service, but also difficulty in acquiring records from any single source and making them available to the agent and consumer. Unlike other financial services providers, the insurance industry cannot readily supervise or direct the activities of its agents because they are so independent. The industry has fewer standardized education programs and experiences more difficulty in assuring that these training standards are enforced.
Insurance companies are reluctant to market directly to consumers for fear that their wholesale and retail distribution networks (the MGA's and the agents) will be disrupted, further weakening the connection between consumers and companies. Indeed, direct marketing to the public via television and the Internet may bypass some existing sales intermediaries, and some agents and agencies may not make the transition. However, personal contact between a consumer and an agent will remain an essential part of the sales and service cycle for the foreseeable future because of the sensitive nature of the financial relationship that life insurance represents.
With all the computing power originally concentrated in the companies in the formative early years, the insurance industry established transaction flows and communication modes specifically designed for its centrally managed top-down process. Most transactional communication from the company was directed to the managing agency and the agent, not the consumer. If anything important had to be conveyed to the consumer, an agent performed the role of messenger. If a consumer had questions, it was the agent who fielded them. With the advent of the personal computer, however, computing power has gradually grown within households to the point where the collective computing power contained in all the home computers and game stations would rival the computing power of a large corporation.
Intertwined with the issue of transactional exchange among industry components is the issue of control and authority by which some components make decisions within the scope of recognized legal authority and possess ownership over property in areas recognized by law. All components of the industry must agree on these fundamental issues of control, authority, and ownership in order for business to be transacted.
In current business models and practice, the company is the controlling source of all control, authority, and ownership, since it is companies who create, own, and underwrite the financial product, and who retain responsibility for administration following purchase of a product by consumers. This traditional hierarchy of power is a pyramid structure with the company at the top, and with the general agencies occupying the second tier from the top, agents at the third tier, and consumers at the base. In this model the consumer has no direct access to company information systems that maintain their private data (personal health data as well as financial data), and even agents can exercise only the data access afforded them by the general agency or the company.
With the advent of the global Internet, it has become apparent that information systems are quite easily constructed to maintain consumer data and at the same time provide access to the consumer who is the source of that data. This situation puts consumer data ownership and consumer data access on the same footing, as should be the case. The owner of a property should have a legal right to access that property, and to prevent others from accessing that property.
The industries that are profiting from the computer revolution now are those that have made the consumer an active player in the game of e-commerce. An early lesson learned by these companies is that customer support has to be immediate and extensive to respond to consumer questions and complaints. Also, systems must be designed to give maximal decision-making capability to the consumer when they are browsing an e-commerce site. The insurance industry is having a difficult time furnishing an equivalent empowering capability for its policyholders and potential customers. The question yet to be answered is how can the insurance industry profit from the tremendous networked computation capability now in the hands of consumers. How can the industry move to enable the consumer without also diluting their own ownership or disrupting their own top-down, corporation-centric established procedures and systems?
The inertia of proprietary legacy computer systems, combined with the competitiveness within the industry, has made it seemingly impossible to break out of the status quo transactional configuration. Industry programs for establishing standards for communication and information format would appear to be an advantage for all companies, in that they would eventually increase sales and profits. However, competitive pressure legislates that sharing standards across the industry is too risky to push ahead quickly. Likewise, an implicit goal of protecting proprietary systems leads companies to decide that new systems should not be constructed too quickly, less resources be pulled away from maintaining the old legacy systems. In any case, it is the companies working at the highest levels of their management who are failing in their attempts to reconfigure the industry.
A glaring fact that has emerged from various studies of the insurance industry is that none of the approaches currently at play in the insurance industry offer any new conceptual approaches by which the Internet can be harnessed to re-vitalize industry relationships in fresh and innovative ways. All of them merely seek to use the Internet technology as a way of leveraging current power hierarchies for strengthening already-existing industry relationships.
In addition, consumers are treated as merely the source of revenue, but given no expanded powers other than a newer way to provide a monetary stream via the Internet. Similarly, the agent is viewed from the point of view of a distribution model in which financial product is marketed and moved by means of agents, but agents are given no capability for enhancing their personal business interests in relation to agencies or carriers.
Thus, there is a considerable need in the insurance industry for the subject of the present invention, namely, a system, method, and business model that enhances communication and transactional processing between segments of the industry. Further, there is a great felt need to coordinate the insurance industry through global computerized networks to allow for universal forms and terminology, in order to make the insurance industry more accessible to the consumer via e-commerce. There is a need for a cross-company industry portal or platform that allows information from multiple insurance companies to reside in a place accessible by consumers, agents, and agencies on an as-needed basis, rather than as the result of company-designed transactions that are restrictive and limiting in their enablement of business.